Abstract

http://ssrn.com/abstract=1687763
 
 

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Automated Trading with Genetic-Algorithm Neural-Network Risk Cybernetics: An Application on FX Markets


Lanz Chan


Beijing Institute of Technology - Zhuhai Campus

Wing-Keung Wong


Department of Finance, Asia University, Taiwan

February 20, 2012

Finamatrix Journal, February 2012

Abstract:     
Recent years have witnessed the advancement of automated algorithmic trading systems as institutional solutions in the form of autobots, black box or expert advisors. However, little research has been done in this area with sufficient evidence to show the efficiency of these systems. This paper builds an automated trading system which implements an optimized genetic-algorithm neural-network (GANN) model with cybernetic concepts and evaluates the success using a modified value-at-risk (MVaR) framework. The cybernetic engine includes a circular causal feedback control feature and a developed golden-ratio estimator, which can be applied to any form of market data in the development of risk-pricing models. The paper applies the Euro and Yen forex rates as data inputs. It is shown that the technique is useful as a trading and volatility control system for institutions including central bank monetary policy as a risk-minimizing strategy. Furthermore, the results are achieved within a 30-second timeframe for an intra-week trading strategy, offering relatively low latency performance. The results show that risk exposures are reduced by four to five times with a maximum possible success rate of 96%, providing evidence for further research and development in this area.

Number of Pages in PDF File: 28

Keywords: Automation, Autobot, Genetic-Algorithm Neural-Network, Risk-Pricing, Risk Cybernetics, Expert Advisor


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Date posted: October 5, 2010 ; Last revised: August 8, 2015

Suggested Citation

Chan, Lanz and Wong, Wing-Keung, Automated Trading with Genetic-Algorithm Neural-Network Risk Cybernetics: An Application on FX Markets (February 20, 2012). Finamatrix Journal, February 2012 . Available at SSRN: http://ssrn.com/abstract=1687763

Contact Information

Lanz Chan (Contact Author)
Beijing Institute of Technology - Zhuhai Campus ( email )
Tangjia Bay
Zhuhai, Guangdong
China
Wing-Keung Wong
Department of Finance, Asia University, Taiwan ( email )
Taiwan
Taiwan
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